So, Jon Stewart floats this option every time anyone remotely connected to the economy is on his show, and I have yet to hear one of them argue why it can't be done. Nobody has put forward a reason why his option would be worse than any of the other options we've heard.
Here's Stewart's idea in a nutshell, then I'll add my own brilliant flourishes (make it shiny!):
- The insurance companies (like AIG) are in trouble, because they have insured these loans that just aren't going to get paid back, and they can't afford to cover the banks' losses;
- The banks are in trouble because they have all of these loans on their books that aren't going to get paid back, and so their actual capital is less than what they need to be able to loan money out like they're supposed to;
- The homeowners are in trouble because they have these mortgages they can't pay back because they were stupid/gullible/greedy/whatever and were lured into taking out mortgages that they couldn't afford (and shouldn't have been approved for).
So far, our solution has been to give money to the insurance companies and banks: Now the insurance companies can cover the losses they've insured at the banks, and the banks can start lending money again. Homeowners... well, sorry, you're screwed... but you should have known better!
The problem is that the insurance companies and the banks aren't taking the money and using it to fix the economy, they're taking it and awarding themselves crazy bonuses, throwing lavish events, and not putting the money back into circulation in the form of loans, etc. So the economy is not moving forward, and our tax dollars are disappearing.
Jon Stewart thinks it's time to give the 3rd party in the debacle a chance to show us what they'll do with the money. Why not give the bailout money to the homeowners so they can pay off their mortgages? Then, the toxic assets aren't toxic anymore, banks balance books look like they're supposed to (provided they don't start making stupid loans again), AIG et. al. don't have to cover the losses on those loans because they're not losses anymore... problem solved, right?
Those are the pros, what are the cons?
1) Well, do homeowners who took risks they should have known better than taking be bailed out by the goverment? Is that fair to others who either continue to make their payments, or to others who didn't buy a home because they knew that they couldn't really afford it?
2) If we just give money to them, how do we know they'll use it responsibly to pay down their debt? What if they waste it on frivolous spending?
It's funny, because the cons of giving the money to the homeowners are the same as the ocns we've seen fleshed out in gory detail for the banks and insurance giants. So what if we can structure a bailout of homeowners that takes some of our experience with the financial institutions into account?
Right now, we own part of AIG and several banks as taxpayers. I'm not interested in owning those companies, I'd rather own houses! What if the government buys houses from people who are stuck in houses that they're in danger of defaulting on? Here are some ideas to make this work:
1) The government will buy any home that is in danger of foreclosure under certain conditions. Some conditions might have to do with when the loans originated, the payment history before interest was reset for ARMs, the percentage of equity versus the current appraised value of the property, etc.
2) The government will pay a price that covers the payoff amount of the mortgage, plus a percentage of the equity based on some formula that takes the aforementioned conditions into account. The payoff money for the mortgage does not go to the homeowner, but directly to the lending institution, releasing the title to the government. The balance goes to the homeowner in exchange for releasing the title to the government.
3) The government then immediately puts the home on the market, using a formula for the price that takes into account the price paid for the home and the current appraised value for the home. Any financial institution that wants to handle the mortgage for these government sales must choose from a limited number of options, like fixed-rate 30-year notes with minimal interest rates. It might even be an option to offer 40 or 50 year notes to qualifying buyers.
4) Current occupants of the home can be given the first opportunity to apply for the new loan and buy the house back from the government. If they apply (with realistic qualifications), they don't have to move out of the house and then move back in. They don't get the house for free, they get a restructured loan with government assistance.
So, the loans are no longer toxic, just a little bit nauseating. The banks exchange theoretical assetts and interest income that they'll never get back for a less amazing looking return, but a return they will actually receive. The government intervenes to make sure that the bank recoups its initial investment plus interest, though the interest is less amazing than they thought they could get in their pre-bubble-burst fantasy world.
Insurers don't need to save the banks, therefore they don't need government assistance, therefore they can use their own money to pay out bonuses and throw lavish to-dos.
Homeowners don't get a free house from the government, they just get another chance to pay off their debt with restructured loans that are more realistic. People who waited and didn't buy a home with crazy, unrealistic rates now have a chance to buy a house with reasonable rates that will stay reasonable from the government from those homeowners who really shouldn't have even tried, and who lose their homes but don't end up hopelessly in debt.
Why not? There's lots of cons, but I posit that the downside is less dreary than the current system of propping up the financial institutions directly. They've shown they can't be trusted to be responsible with our money. I'm all for giving the little guys a chance to disappoint us. We might be pleasantly surprised...
- "Now begone, before somebody drops a house on you!"
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Tuesday, March 17, 2009
Friday, September 26, 2008
Customer Disservice
My sister-in-law has been doing some sleuthing into the fee-scheduling practices of her current (soon to be former) bank, and her findings are interesting, infuriating, frustrating, and (I'm afraid) fairly typical. (I won't name the bank, but it's the bank of our continent... and the next one down...)
Devious and hidden fees aside (par for the course, you know?), what was particularly upsetting was the way that she was "served" when calling the bank's customer service number. There's so much here, I'll make a list:
1) Attitude. The attitude of the person on the other end of the line communicated that their job would be so much easier if it weren't for all of these customers calling all day long and demanding service. That's the job! That's what you're paid for! Similarly bemusing was the fact that the length of the call (to be fair, it was a long phone call with lots of questions) seemed to be the most irritating thing to this alleged service provider. If you work answering customer service calls from 9-5, what does it matter if you handle 5 1-hour calls or 30 20-minute calls? I can think of many reasons to consider either one of those scenarios to be "more work" than the other, but the fact that there is a substantial wait time to speak to a human leads me to believe that my sister-in-law was keeping them from answering another (potentially annoying) call, not from taking a donut break. Of course the people calling don't know what's going on and are not helpful... that's why they're calling! If they knew the information they're asking you about, they wouldn't call! It's like a doctor complaining about how they just see sick people all day. Yeah, the people who aren't sick are at work! The people who understand how their banking services work are not going to call you to talk about last night ball game.
2) Deception and/or Incompetence. The person (or persons, she made several calls) she talked to gave her information about the fees levied upon her account that was false. There are 2 options for why this was so: 1) the person lied, or 2) the person was misinformed. If the person lied, that's just wrong! Did they lie because they were instructed to lie by management, or did they lie of their own volition to get this person off the phone?
But what if it was an honest mistake? The person just had the wrong information? Well, it seems to me that this is a failing higher up in the hierarchy: it is the responsibility of management to insure that employees tasked with disseminating information to customers be supplied with accurate information! I'd be willing to bet that the accountants who handle monthly statements are higher up on the list of people who need to know important fee-schedule information than customer service phone-jockeys, and that's wrong.
Regardless of where the deception or incompetence began in the chain of command, it seems reasonable to me to dismiss any fees levied against a customer if an employee of the firm whose responsibility it is to communicate factual information to the customer tells them that there are no fees. Decisions are made based on the assumption that the information received is correct: whether to transfer money to another account or another bank, for example. Money lost because of that incorrect information should be refunded (with interest). To say that the regulations on the books take precedence over those communicated by human beings employed by the bank is to abdicated responsibility in an inexcusable manner.
The real problem is that customer service is embedded into what is essentially a bureaucracy. You start out wanting to make sure that all of your employees and customers are treated fairly, and if your organization becomes large enough, you need to develop some protocols and guidelines to make sure that the same procedures are followed for everyone. It's intended to serve well and serve without bias. Then, you get so large that you need to hire people just to make sure these procedures are carried out.
The fundamental flaw in any bureaucracy appears the instant a bureaucrat understands their primary function to be serving the procedures and rules rather than serving the employees and customers. The rules exist because they were deemed at some point to be the best tools for serving the needs of employees and customers while minimizing time and cost expenditure to the employer. A bureaucrat must realize, however, that cases will come up on occassion where the original purpose for instituting the rules and procedures are disserved if those same rules and procedures are followed to the letter. Bureaucrats must feel that they have the flexibility to amend procedures on occassion when they don't serve their intended purpose.
Once a bureaucracy is entrenched, however, rules and procedures are developed to serve the structure of the bureaucracy, with service to employees and customers no longer part of the rubric. Any manager of an organization that seeks to serve the public or their own employees must be willing to review the machinations of bureacracy on occassion and weed out those places where the machine is serving itself at the expense of those it was built to serve. What do you do if the robot you built to mow your lawn ends up needing to burn your lawn to create fuel for itself? Well, you go back to the garage and pull out the old manual mower, or you let the lawn grow out of control. Neither of these is an attractive option, but that shouldn't stop us from shutting down the destructive grass-burning mower.
"Bureacracy" doesn't have to be a pejorative, and the eventual dissolution of customer service doesn't have to be inevitable. It might require more time, money, or even more thought. It's sad that in the current economic climate, that's a deathblow to treating those we ostensibly serve like annoying fuel.
- "No, wait, I'll go upstairs and hit some guests."
Devious and hidden fees aside (par for the course, you know?), what was particularly upsetting was the way that she was "served" when calling the bank's customer service number. There's so much here, I'll make a list:
1) Attitude. The attitude of the person on the other end of the line communicated that their job would be so much easier if it weren't for all of these customers calling all day long and demanding service. That's the job! That's what you're paid for! Similarly bemusing was the fact that the length of the call (to be fair, it was a long phone call with lots of questions) seemed to be the most irritating thing to this alleged service provider. If you work answering customer service calls from 9-5, what does it matter if you handle 5 1-hour calls or 30 20-minute calls? I can think of many reasons to consider either one of those scenarios to be "more work" than the other, but the fact that there is a substantial wait time to speak to a human leads me to believe that my sister-in-law was keeping them from answering another (potentially annoying) call, not from taking a donut break. Of course the people calling don't know what's going on and are not helpful... that's why they're calling! If they knew the information they're asking you about, they wouldn't call! It's like a doctor complaining about how they just see sick people all day. Yeah, the people who aren't sick are at work! The people who understand how their banking services work are not going to call you to talk about last night ball game.
2) Deception and/or Incompetence. The person (or persons, she made several calls) she talked to gave her information about the fees levied upon her account that was false. There are 2 options for why this was so: 1) the person lied, or 2) the person was misinformed. If the person lied, that's just wrong! Did they lie because they were instructed to lie by management, or did they lie of their own volition to get this person off the phone?
But what if it was an honest mistake? The person just had the wrong information? Well, it seems to me that this is a failing higher up in the hierarchy: it is the responsibility of management to insure that employees tasked with disseminating information to customers be supplied with accurate information! I'd be willing to bet that the accountants who handle monthly statements are higher up on the list of people who need to know important fee-schedule information than customer service phone-jockeys, and that's wrong.
Regardless of where the deception or incompetence began in the chain of command, it seems reasonable to me to dismiss any fees levied against a customer if an employee of the firm whose responsibility it is to communicate factual information to the customer tells them that there are no fees. Decisions are made based on the assumption that the information received is correct: whether to transfer money to another account or another bank, for example. Money lost because of that incorrect information should be refunded (with interest). To say that the regulations on the books take precedence over those communicated by human beings employed by the bank is to abdicated responsibility in an inexcusable manner.
The real problem is that customer service is embedded into what is essentially a bureaucracy. You start out wanting to make sure that all of your employees and customers are treated fairly, and if your organization becomes large enough, you need to develop some protocols and guidelines to make sure that the same procedures are followed for everyone. It's intended to serve well and serve without bias. Then, you get so large that you need to hire people just to make sure these procedures are carried out.
The fundamental flaw in any bureaucracy appears the instant a bureaucrat understands their primary function to be serving the procedures and rules rather than serving the employees and customers. The rules exist because they were deemed at some point to be the best tools for serving the needs of employees and customers while minimizing time and cost expenditure to the employer. A bureaucrat must realize, however, that cases will come up on occassion where the original purpose for instituting the rules and procedures are disserved if those same rules and procedures are followed to the letter. Bureaucrats must feel that they have the flexibility to amend procedures on occassion when they don't serve their intended purpose.
Once a bureaucracy is entrenched, however, rules and procedures are developed to serve the structure of the bureaucracy, with service to employees and customers no longer part of the rubric. Any manager of an organization that seeks to serve the public or their own employees must be willing to review the machinations of bureacracy on occassion and weed out those places where the machine is serving itself at the expense of those it was built to serve. What do you do if the robot you built to mow your lawn ends up needing to burn your lawn to create fuel for itself? Well, you go back to the garage and pull out the old manual mower, or you let the lawn grow out of control. Neither of these is an attractive option, but that shouldn't stop us from shutting down the destructive grass-burning mower.
"Bureacracy" doesn't have to be a pejorative, and the eventual dissolution of customer service doesn't have to be inevitable. It might require more time, money, or even more thought. It's sad that in the current economic climate, that's a deathblow to treating those we ostensibly serve like annoying fuel.
- "No, wait, I'll go upstairs and hit some guests."
Thursday, May 29, 2008
Renters vs. Speculators
This article on CNN.com made me think about the nuances of the mortgage crisis a little harder.
I agree that people who bought houses as speculators should not be helped out of those bad investments by the government. Any investment involves risk, and buying a home as a purely money-making investment with a mortgage structured to guarantee that you'll never actually pay it off should count as one of those risks.
When someone buys a home to live in however, it's more than just an investment. The purpose of buying the home isn't merely to use it as an opportunity to increase capital; it's fulfilling one of the basic human needs: shelter. Many people who bought homes to live in via a poorly structured loan would never have been able to qualify for a loan otherwise. They were the vicitims of predatory lending practices, but before that they were the victims of an economy that places home ownership out of people's grasp.
There's another option for people who can't qualify to buy their own home: rent one! And here's where it gets sticky. What happens when an unscrupulous speculator buys a home as an investment, but then rents it out to someone who is not a speculator, but merely someone renting to fulfill the basic human need of shelter for themselves and their family? When the owner is foreclosed upon because they gave up on paying off the mortgage for a home they don't even live in, what options do the renters have, and what rights should they have?
The renters could buy the home from the bank, but many people rent precisely because they don't have the credit history or income necessary to qualify for a loan from the bank to buy a home.
Here's what I propose:
1st step - The bank must allow the renters to remain in the home after foreclosure for the duration of their lease or 6 months, whichever is greater, while paying the rent specified in their lease directly to the bank, as long as the amount of the rent is greater than or equal to the amount the erstwhile owner was supposed to pay the bank as specified in the original mortgage agreement. There is an understanding that after this time period is over, the lease will not be renewed.
2nd step - If the rent specified in the lease is less than the mortgage payment required of the owner, the bank extends the option to the renters to remain in the home for the duration of their lease or 6 months, whichever is higher, but they must pay to the bank the amount that the owner was supposed to have paid as per their mortgage agreement (non-retroactive: just keep up, they don't have to catch up!). There is an understanding that after this time period is over, the lease will not be renewed.
3rd step - If the renters have lived in the house for at least 1 year and have a perfect history of paying their rent, then once the lease (or 6 months) is up, the bank offers the renters the first chance at buying the property. The sale amount is not to exceed the balance of the mortgage, and the regular credit-score/income requirements should be waived. If the equity already in the house is equal to 15% of the current value of the house, no down payment is required. If not, a down-payment which will bring the equity up to 15% of the current value of the house may be required by the bank at the bank's discretion.
4th step - If the renters have lived in the house for less than 1 year and/or have a less than perfect history of rental payments on the house, then they will also have the first chance at buying the property with a loan structured as above, but the bank may apply the regular credit-score/income requirements to the renters.
5th step - If the renters are unwilling or unable to purchase the house under the above structure, the bank is free to offer the house for sale as it would any other foreclosed property.
Throughout this whole process, the speculative/deadbeat owner is cut out: They have been foreclosed upon and have no further connection to the property. Any investment they made in the property is lost, and their credit history reflects their poor investment choices.
So, what do you think? Is this fair? Is it reasonable for the government to require lending institutions to extend these options to renters?
- "None at all."
I agree that people who bought houses as speculators should not be helped out of those bad investments by the government. Any investment involves risk, and buying a home as a purely money-making investment with a mortgage structured to guarantee that you'll never actually pay it off should count as one of those risks.
When someone buys a home to live in however, it's more than just an investment. The purpose of buying the home isn't merely to use it as an opportunity to increase capital; it's fulfilling one of the basic human needs: shelter. Many people who bought homes to live in via a poorly structured loan would never have been able to qualify for a loan otherwise. They were the vicitims of predatory lending practices, but before that they were the victims of an economy that places home ownership out of people's grasp.
There's another option for people who can't qualify to buy their own home: rent one! And here's where it gets sticky. What happens when an unscrupulous speculator buys a home as an investment, but then rents it out to someone who is not a speculator, but merely someone renting to fulfill the basic human need of shelter for themselves and their family? When the owner is foreclosed upon because they gave up on paying off the mortgage for a home they don't even live in, what options do the renters have, and what rights should they have?
The renters could buy the home from the bank, but many people rent precisely because they don't have the credit history or income necessary to qualify for a loan from the bank to buy a home.
Here's what I propose:
1st step - The bank must allow the renters to remain in the home after foreclosure for the duration of their lease or 6 months, whichever is greater, while paying the rent specified in their lease directly to the bank, as long as the amount of the rent is greater than or equal to the amount the erstwhile owner was supposed to pay the bank as specified in the original mortgage agreement. There is an understanding that after this time period is over, the lease will not be renewed.
2nd step - If the rent specified in the lease is less than the mortgage payment required of the owner, the bank extends the option to the renters to remain in the home for the duration of their lease or 6 months, whichever is higher, but they must pay to the bank the amount that the owner was supposed to have paid as per their mortgage agreement (non-retroactive: just keep up, they don't have to catch up!). There is an understanding that after this time period is over, the lease will not be renewed.
3rd step - If the renters have lived in the house for at least 1 year and have a perfect history of paying their rent, then once the lease (or 6 months) is up, the bank offers the renters the first chance at buying the property. The sale amount is not to exceed the balance of the mortgage, and the regular credit-score/income requirements should be waived. If the equity already in the house is equal to 15% of the current value of the house, no down payment is required. If not, a down-payment which will bring the equity up to 15% of the current value of the house may be required by the bank at the bank's discretion.
4th step - If the renters have lived in the house for less than 1 year and/or have a less than perfect history of rental payments on the house, then they will also have the first chance at buying the property with a loan structured as above, but the bank may apply the regular credit-score/income requirements to the renters.
5th step - If the renters are unwilling or unable to purchase the house under the above structure, the bank is free to offer the house for sale as it would any other foreclosed property.
Throughout this whole process, the speculative/deadbeat owner is cut out: They have been foreclosed upon and have no further connection to the property. Any investment they made in the property is lost, and their credit history reflects their poor investment choices.
So, what do you think? Is this fair? Is it reasonable for the government to require lending institutions to extend these options to renters?
- "None at all."
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